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England and Wales High Court (Administrative Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> British Gas Trading Ltd, R (On the Application Of) v Secretary of State for Energy Security and Net Zero  EWHC 737 (Admin) (31 March 2023)
Cite as:  EWHC 737 (Admin)
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KING'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
MR JUSTICE FOXTON
| THE KING
(on the application of
BRITISH GAS TRADING LIMITED)
|- and -
|SECRETARY OF STATE FOR ENERGY SECURITY AND NET ZERO
|- and -
|(1) THE NATIONAL ASSOCIATION OF CITIZENS' ADVICE BUREAUX
(2) THE OFFICE OF GAS AND ELECTRICITY MARKETS
(3) SCOTTISHPOWER ENERGY RETAIL LIMITED
(4) E.ON UK PLC
(5) BULB ENERGY LIMITED (IN ENERGY SUPPLY COMPANY
(6) DANIEL FRANCIS BUTTERS, MATTHEW JAMES COWLISHAW AND
MATTHEW DAVID SMITH, AS JOINT ENERGY ADMINISTRATORS FOR THE
5th INTERESTED PARTY
(7) OCTOPUS ENERGY GROUP LIMITED ("OCTOPUS")
(on the application of
(1) SCOTTISHPOWER ENERGY RETAIL LIMITED
(2) SP SMART METER ASSETS LIMITED)
| THE SECRETARY OF STATE FOR ENERGY SECURITY AND NET ZERO
|(1) THE GAS AND ELECTRICITY MARKETS AUTHORITY
(2) THE JOINT ENERGY ADMINISTRATORS OF BULB ENERGY LIMITED (IN ENERGY SUPPLY COMPANY ADMINISTRATION)
(3) OCTOPUS ENERGY GROUP LIMITED
(4) OCTOPUS ENERGY RETAIL 2022 LIMITED
(5) BRITISH GAS TRADING LIMITED
(6) E.ON UK PLC
(7) THE NATIONAL ASSOCIATION OF CITIZENS ADVICE BUREAUX
(on the applications of
(1) E.ON UK PLC
(2) E.ON NEXT ENERGY LIMITED
(3) E.ON ENERGY SOLUTIONS LIMITED)
|SECRETARY OF STATE FOR ENERGY SECURITY AND NET ZERO
(formerly the Secretary of State for Business, Energy and Industrial Strategy)
|(1) THE NATIONAL ASSOCIATION OF CITIZENS' ADVICE BUREAUX
(2) THE GAS AND ELECTRICITY MARKETS AUTHORITY
(3) BULB ENERGY LIMITED (IN ENERGY SUPPLY COMPANY ADMINISTRATION)
(4) DANIEL FRANCIS BUTTERS, MATTHEW JAMES COWLISHAW AND MATTHEW DAVID SMITH, AS JOINT ENERGY ADMINISTRATORS FOR THE 3rd INTERESTED PARTY
(5) OCTOPUS ENERGY GROUP LIMITED
(6) OCTOPUS ENERGY RETAIL 2022 LIMITED
Kieron Beal KC, Naina Patel and Warren Fitt (instructed by Allen & Overy LLP) for ScottishPower
George Peretz KC, Julian Gregory and Harry Gillow (instructed by Pinsent Masons LLP) for E.ON
Jason Coppel KC, Malcolm Birdling, Patrick Halliday and Alastair Richardson (instructed by the Treasury Solicitor and Hogan Lovells International LLP) for the Defendant
Tom Hickman KC and Sean Butler (instructed by Linklaters LLP) for the Joint Energy Administrators and Bulb
Lord Pannick KC and Will Bordell (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for Octopus
Hearing dates: 28 February - 2 March 2023
Crown Copyright ©
Lord Justice Singh and Mr Justice Foxton:
The Core Facts
The Approach to the Issues of Fact
Our Findings on the Facts
"As far as Bulb is concerned, it is entirely obvious that in order to trade it needs funding, and the only available funding is that on the terms proposed by the Secretary of State. As the evidence makes clear, there are no other funding options available. The Funding Agreement is the only show in town. It therefore seems to me obvious that entry into the Funding Agreement is a proper exercise or would be a proper exercise of power by the Proposed Administrators."
Mr Justice Adam Johnson noted that the appointment of a SoLR was thought to be impractical, given the size and importance of Bulb as a supplier, and that Ofgem was not confident that a SoLR would be able to manage the transition of so many customers in a sufficiently orderly way, which the Judge described as "an entirely justified concern".
(i) A SoLR process was "not a feasible alternative".
(ii) Bulb's 1.5 million customers was a figure "far in excess" of any SoLR process which had been implemented to date.
(iii) Ofgem would have considerable concerns about directing a SoLR to take on Bulb's customers, and would need to undertake significant due diligence as to the operational and financial capability of any volunteer.
(iv) There was a risk that a SoLR process would risk precipitating the failure of the SoLR, necessitating another government intervention.
(i) One of the questions addressed was whether negative consideration offers (i.e. those which required a subsidy) would be acceptable, or whether the sales process would be pulled. This was described as "an important question that buyers will want to know the answer to before spending any bid costs". Lazard's response was that BEIS "are keen to sell and are not saying that negative consideration would not be possible, but they worry that if any indication is given of this it would lead the bidders and they could be foregoing value".
(ii) This exchange exemplified what became a major theme of the sales process – BEIS' professional advisers expressing the view that some form of HMG funding would be necessary to close a transaction, but concern by HMG that if it was seen to be too forthcoming on its readiness to provide that funding, it would not secure the most advantageous offers from potential purchasers.
(iii) Another question was: "is there a competition policy objective to keep in mind ... (independent supplier / new entrant benefit, maintaining technology platform competition)?" The answer was "no, purely value driven/ Will be ok with market concentration (subject to CMA views) even if customers go to Centrica" (a reference to the Competition and Markets Authority).
(iv) The paper also addressed the question: "Bidders question likely to arise as 'What is BEIS proposal on mitigating market risk exposure [given unhedged position] to optimize value'". Consistent with the answer at (i) above, the response was: "don't want to provide indication of willingness to consider to avoid leading bidders. After some discussion, agreed that there is a risk that not providing guidance could actually deter bidders and that appropriate timing on suggesting any structures should be considered in context of how the process is going …".
"We need to maximise the recovery from the sale value to minimise the overall exposure to the consumer. Therefore, our overall view is that the M&A process should be a primarily market driven one, focussing on cost. This principle extends to HMG not taking a position as to the desirability of bid profiles or investor types.
Given this construct, Teneo and Lazards will be responsible for undertaking the assessment of the M&A bids, as detailed in Annex C" [with certain exceptions].
Those exceptions included "financial structures", "e.g. reliance on a portion of HMG funding remaining in the company", and "subsidy control", "if any value coming from Government funding is left in the company when it is sold, it may be considered a subsidy and therefore fall into the Subsidy control regime."
"There is optionality for interested parties on the scope / perimeter of the Potential Transaction, and we invite interested parties to indicate in their Indicative Offer both (i) how they would bid on the indicative transaction structures … and (ii) whether an alternative transaction structure …would be preferred".
The deadline for indicative offers was 4 April 2022.
"We have therefore held a firm line with Teneo /Lazard that (i) Lazard should not proactively advertise any potential financial structures to bidders (ii) we will not confirm the acceptability of any financial structure or communicate a preferred option(s) until we have seen and digested Phase-1 bids".
The minutes of the board meeting reflected that view, stating "it should be up to buyers to communicate to HMG what they need to take on the business" and that there was "nothing to be gained from communicating HMG willingness to provide support at this stage". The minutes did note that Teneo were suggesting "'soft' communications from HMG that support may be available could be necessary at some point".
"The onus should be on potential participants to set out a way(s) in which they could make the transaction work in current market conditions … We'd be keen to minimise the assurances provided to what is necessary for each specific party (i.e. not to be shared with other parties that are not asking these specific questions)".
(i) BGT's bid noted that "we understand that Bulb remains largely unhedged, and that the valuation of the exposed volume is material. Finding a treatment of this exposure that is acceptable to all parties will be an important factor in the outcome of this process and we would seek to engage with the government on this".
(ii) BGT also stated that it understood that "Lazard and [the JEAs] will be in contact with the Government and may develop a position on acceptable transaction structures. We are open to discussing these structures further when appropriate".
(iii) It was clear to BGT, therefore, that there was scope for discussion as to HMG support in relation to hedging (the only potential scope for such support which BGT had flagged), albeit BGT was anticipating a proposal from HMG.
(iv) Tulip's bid stated "we are also considering a potential option for the government to continue funding the business throughout the summer price cap period following [the] acquisition. This would be aimed at removing the hedging execution risk …".
(v) Tulip, therefore, had also flagged a potential need for HMG support in the area of hedging, although it contemplated coming forward with its own proposal.
(i) whether two bidders was sufficient to achieve competitive tension (the answer being that two serious bidders was sufficient, but there was a significant risk of both bidders falling away due to the regulatory environment); and
(ii) whether it was likely that participation would improve "if we were able to provide more information on the types of support available" (to which Lazard's answer was "more information on support available is essential to the two parties envisaged to remain in the process as well as for potentially bringing other parties back into the process").
"Topics that Ofgem has still not provided clarity on make this sector very risky. Ofgem has not yet resolved the backwardation issue and the potential ringfencing of credit balances could mean that soon retail could be of no interest even to us …buying in this context doesn't make sense …. We expect that others will pay a strategic premium for the Brand and Tech which to us are of no value".
"Backwardation" referred to the position when the forward period for the price suppliers can charge differs from the forward period a nominal supplier would use for its hedging.
"How are you going to decide who to engage with – are there any legal / presentational risks (i.e. of a perception that this wasn't a fair and open process)? Specifically, how do we ensure that were there a JR of the process this would not be found to be unfair?
Could you explicitly, for our records, set out the purpose of this engagement?"
"assuming further clarity is provided on the issues and areas of uncertainty flagged by bidders, re-test interest with parties that withdrew from Phase 1 citing these uncertainties in an effort to maximise competitive tension".
(i) BEIS had asked for more detail on the conversations the JEAs intended to have with BGT and Tulip on financial structuring. Teneo stated that this would "consist of the script on financial structuring which has been previously reviewed and approved by BEIS".
(ii) BEIS had asked how the JEAs were going to decide which non-bidders to engage with. Teneo replied that "such feedback would be very beneficial for the overall sale process, particularly to reconfirm that each bidder does not have any potential interest in the opportunity" and that it would have "discussions with the strategic buyers (i.e. Shell, Octopus, [Daisy], ScottishPower) which were considered to be key potential bidders for the Bulb assets at the start of the marketing process".
"We have agreed with Teneo that they engage with key strategic participants that signed up to NDA but didn't subsequently make submissions into Phase-1. One of the purposes of this engagement is to understand if there would be a future point (e.g. after specific regulatory decisions) that parties would be interested in the Bulb proposition. This information could be important should we need to pause and re-start the M&A process at a future point, to identifying when that future point should be.
Teneo have offered a meeting .. to [Daisy], Octopus, Shell and ScottishPower. As it stands this offer has been accepted by [Daisy] and Octopus …
If one or both of these parties were to indicate that they are not interested in the proposition now, but could be at a future point, we will consider whether it could be helpful and appropriate for Teneo to continue to engage with these parties … such that it would be easier to bring them back in a scenario in which we needed to pause and then subsequently restart the process. Does the board have any steer on whether such engagement would be beneficial/appropriate?"
(emphasis in original).
(i) The selection was not made or influenced by BEIS or the SoS, but by the JEAs and Lazard, although BEIS supported the JEAs' decision to approach "key potential bidders" as determined by the JEAs and their advisors.
(ii) Those selected were seen by Lazard and the JEAs as "key strategic participants" in the energy market, being "medium and large incumbents" (or as it was put in a later "M&A Process Update" entry, to "medium and large incumbents (Octopus, [Daisy], ScottishPower and Shell)").
(iii) No approach was made to a non-bidder who had raised objections to the proposed acquisition which Lazard did not consider could be addressed by HMG support. E.ON was not re-approached for this reason. If it matters, that was an assessment reasonably open to Lazard in the circumstances set out at  above.
(iv) The selection criteria were to a significant extent judgmental, but the choice was not made on an irrational basis, but by reference to the two criteria in (ii) and (iii) above.
(v) The scope of the re-engagement exercise was influenced by commercial concerns that too wide a process risked alerting the market to the limited response to the Phase-1 process, which was a view it was reasonably open to Lazard to hold from a commercial perspective.
(i) On 14 April 2022, Mr Morton, a Director at Teneo, sent a text to Mr Stuart Jackson, Octopus' CFO and co-founder, asking if he would be willing to discuss Octopus' decision not to make a bid and "whether there could be an alternative structure which could work". Mr Jackson offered a call on 19 April. An internal (Teneo) text referred to the fact that a "script [was] agreed with BEIS" for such a call which we have concluded is the "further script" referred to at  above. Teneo said they were "keen to understand what they would have needed to be interested." The texts suggest that the call had still not taken place by 17.40 on 19 April, when Mr Morton was still trying to arrange it. We are not persuaded that the substance of that initial communication was materially different to communications with BGT (), ScottishPower () and E.ON ().
(ii) On 27 April, a Zoom meeting took place between Mr Morton, Mr Cowlishaw and Mr Harris of Teneo, and Mr Jackson and others of Octopus. We think it likely that this was the "call" which Mr Morton had been trying to initiate since 12 April, rather than a further call, because there had clearly been difficulties arranging the call, and there is no evidence that Teneo and Octopus actually spoke before this date.
(iii) Notes of the call show Teneo asking what factors would have changed Octopus' decision and indicating that they were still open to a conversation if Octopus wished to become involved. Octopus identified its main issues as the hedge book, and the need for working capital while credit balances were built up over the summer months. However, Octopus stated that it would love to do the deal and had no operational issues with it. A note records someone as stating "if there is a way to de-risk the issues [Octopus] sees, Teneo open to conversation on possible solutions". Octopus identified two issues – the hedge gap and working capital during the winter – and it was asked to provide a bullet point email of what it would need to consider the bid. While we do not think anything turns on this, we have concluded that it is more likely that Octopus first raised the issue of HMG support during the call, albeit, given the purpose of the re-engagement, Teneo would have made some reference to it if Octopus had not done so.
(iv) We do not believe the stance of the JEAs in this meeting was materially different to what had been or was to be communicated with other bidders or non-bidders: ascertaining what by way of HMG support Octopus would seek, without stating it would be provided, or making a proposal from the selling side as to what was on offer.
(v) Either after this call, or possibly a further call between Mr Jackson and Mr Cowlishaw shortly thereafter (as reflected in a later document referring to Teneo and Octopus discussing the latter re-entering the bidding process in the week commencing 2 May), Mr Stuart Jackson contacted his CEO and co-founder, Mr Greg Jackson, to discuss whether the purchase of Bulb's business with some kind of funding support was something Octopus could undertake. The vagueness of that conversation – "some kind of funding support" – is consistent with our conclusion at (iv).
(vi) Octopus responded rapidly and positively to those initial communications from Teneo, which led to an intensity of interaction between the JEAs and Octopus which did not occur with the other potential bidders. By 3 May 2022, Octopus had asked KPMG to assist it in its consideration of the transaction, and a call between Teneo (Mr Cowlishaw, a licensed insolvency practitioner and a Senior Managing Director) and KPMG (Mr Quantock) was arranged for the same day. After that call, Mr Quantock sent an email to Mr Cowlishaw and Mr Jackson of Octopus referring to "a great conversation" and to Mr Quantock having spoken to Mr Jackson after it who was "keen to progress". Further calls between Teneo and Mr Quantock followed. We have seen nothing to suggest that Mr Cowlishaw provided any further detail as to what HMG support might be on offer in these exchanges, and think it unlikely that he would have done. Given the care taken to "script" what could be said about even the possible availability of such support, we are satisfied that there would have been documented engagement with HMG before any detailed proposal was floated.
(vii) On 6 May 2022, Mr Cowlishaw informed Mr Quantock that Octopus would need to set out in writing "the parameters of their interest", and "a view on value".
(viii) Octopus sent a letter formally confirming its interest on 10 May 2022, in which it alluded to the terms of the sale involving (what would necessarily have been an HMG) hedge on the selling side.
(ix) A meeting appears to have been arranged for 11 May between Teneo, Lazard and KPMG, who were unintentionally left off the invite list (Mr Cowlishaw's notes saying "meant to have a call with their adviser this am – but didn't join").
(x) On 12 May 2022, Mr Quantock held a discussion with Ms Kotzeva, Managing Director of European Energy and Renewables at Lazard. Mr Quantock's email to Mr Jackson after that conversation records the following points:
a) Lazard wanted an indicative offer quickly, and if it was interesting, Octopus would be in the next phase.
b) Binding offers would be sought in early June with a decision in "in a matter of days / weeks".
c) There were other bidders in the process, some already in round 2. While there was some suggestion by BGT that this statement involved discriminatory treatment for Octopus, it was clearly appropriate for Lazard to avoid Octopus getting the impression that they were the only game in town, for reasons of competitive tension. We note the SoS had communicated a similar sentiment to BGT on 15 May [REDACTED].
d) Ms Kotzeva had said that if we are "over 0 then we would get into the next phase (this ignores working cap) cash free debt free", on which Mr Quantock commented "to me this says that they have offers of a pound with a guarantee from government on the WC". We return to the "Over 0" aspect of the note at  below.
e) That "all government stakeholders are lined up and agree to this timetable". Mr Quantock pushed as to who the stakeholders were and all he was told in response is "they reiterated that government would be delivered". It is clear to us that the question and response was concerned with the tight timetable, rather than of any wider import.
f) Mr Quantock said "I sense their [sic] isn't really a proper process here and they are playing it by ear and seeing if they can [get] a deal that works as it's very far away right now."
(xi) Notes of 13 May 2022 suggest that there was contact between Mr Cowlishaw and Mr Jackson that day, in which Mr Jackson said that Octopus' model was "pretty much updated", that the issue of whether customer balances would have to be ring-fenced would impact their funding requirements. While Mr Jackson revealed more of what Octopus would be looking for, the evidence does not suggest that they received any form of assurance at this stage that it would be provided.
(xii) There was also a meeting between Ms Kotzeva of Lazard and Mr Jackson that day, in which Ms Kotzeva said that "access to stakeholders including government can be made available for structuring conversations". It is apparent from an email that day from Ms Kotzeva to Teneo that Mr Jackson communicated Octopus' desire to talk to HMT about the "art of the possible" on reducing the risks of the transaction.
(xiii) The meeting (either virtual or in person) between Teneo and Lazard, and Mr Jackson, took place on 13 May. It is clear that at this meeting, Octopus provided some further insight into what they would be looking for by way of HMG support. In particular, the issue of ring-fencing customer balances was discussed, which it was said would make a difference to Octopus' funding requirement. Octopus was given dates for an SoS meeting. Lazard's note said:
"They seem keen to talk to Treasury on art of the possible re risk … I said they should talk to us, not go direct. They asked if there could be protection from some of the open Ofgem risks."
Octopus' report of the meeting to Mr Quantock said that Lazard had "explained that access to stakeholders including government can be made for structuring conversations". There may have been a further call between KPMG and Teneo that afternoon.
(xiv) Octopus' non-binding indicative offer was submitted on 15 May 2022, offering [REDACTED] per active paying dual fuel Bulb customer, and [REDACTED] per single fuel customer, which, on the basis of 1.5 million customers, involved a price of [REDACTED]. It identified a requirement for certain costs to be set off against the consideration, including an adjustment for the difference between actual hedged costs and an agreed wholesale cost. It did not set out any HMG funding structure.
(xv) On 17 May 2022, the Bulb Operations Board was asked to approve allowing Octopus to proceed to Phase-2. Lazard and Teneo recommended granting approval, to increase competitive tension in Phase-2, something seen as particularly valuable "in the context of minimal engagement from [BGT]". It was suggested that Octopus was the only party which had submitted a clear, assumption-backed bid to date (including the two Phase-1 bidders). The board approved Octopus' re-entry into the process on 24 May 2022.
(xvi) On 9 June 2022, Mr Greg Jackson met the SoS. The issue of what support might be available from HMG was not discussed.
(i) It is relevant, in our view, that Mr Quantock was being told what was necessary to get into Phase-2, not what was necessary to win a bid in which Mr Quantock was told there were already two other entrants.
(ii) The conversation took place after Octopus had sent its 10 May 2022 letter expressing its desire to re-engage in the M&A Process, so Ms Kotzeva cannot have thought any great carrot was required to move matters along.
(iii) We think it likely that Ms Kotzeva made reassuring noises that any bid would be sufficient to get into the next phase of the process. That would be consistent with the decision that the JEAs had taken on Lazard's recommendation in the Phase I Bid Review and Next Steps Recommendation of April 2022 "that all parties that have submitted or will submit an indicative bid are taken through to the next stage of further engagement without delay". It should be noted that BGT was progressed to Phase-2 without having provided a number at all, and Tulip had not been willing to provide a figure in writing.
(iv) If the message was intended to go further than that, then we find it difficult to understand quite what was being suggested, because the effect of the two possible constructions are either too arduous or too generous to be realistic candidates for what Ms Kotzeva was intending to say or what Octopus can have understood. If the message was that the minimum necessary to get into Phase-2 was a net positive value after taking account of Bulb's liabilities, then that set a far higher hurdle than Octopus' successful bid, and would have been meaningless without an understanding of what Bulb's liabilities were. If the message was that the minimum necessary was 0 for Bulb after HMG had met its liabilities and rendered it debt-free, then Octopus cannot have taken that seriously because it bid[REDACTED].
(i) That is not the evidence of Mr Cowlishaw or Mr Jackson, it being for the Claimants to persuade us that such evidence "cannot be correct": .
(ii) Nor is it the effect of the internal contemporaneous documents now produced, with no explanation having been offered for why the expressions of "significant comfort" of a "very significant sum" would not have left some discernible documentary imprint.
(iii) For the JEAs and/or Lazard to have offered "significant comfort" would have involved a very significant departure from what HMG had told them it was willing to do at that stage, on an issue of obvious sensitivity for HMG. The Claimants have pointed us to no material which would justify us concluding that the JEAs and/or Lazard exceeded their clear brief in such a significant respect.
(iv) All that is said is that Octopus was the only entity which put in a bid assuming such a significant level of HMG funding, from which it follows that it must have received "information … which was not available to [ScottishPower] or other bidders". That is, with respect, a very weak basis for such a strong inference, and ignores an equally or more obvious explanation: that Octopus, because it saw greater commercial possibilities in the acquisition than the much larger Claimants, decided to engage with the suggestion that they set out their "ask", on the basis that the only downside would be that the answer was "no".
(i) On 19 April 2022, there was a call between Lazard and ScottishPower, of which no note survives, in which ScottishPower accepts that it was told that Lazard was now open to proposals that contemplated some kind of Government support package, but that it would be for ScottishPower to propose such a package rather than the Government offering one.
(ii) It is Mr Cowlishaw's recollection that on 25 April 2022 ScottishPower suggested that they would be sending a letter in the coming days with a view to participating in Phase-2, and that he was told ScottishPower was interested in the customer book, rather than the entire Bulb business. Mr Baker of ScottishPower says that such a conversation would have been with him, and he does not believe he would have been that committal. However, Mr Cowlishaw's account is supported by a contemporaneous email ("ScottishPower – they just called Luba [i.e. Ms Kotzeva] to say they will send a letter in the coming days (including a number) to try and get into Phase-2. [REDACTED]").
(iii) Further, ScottishPower's response of 28 April strongly suggests it had said it would be making a written submission, but was now changing its position, stating it "had been drafting a formal submission of interest for the process however we have now had a strategic change of course", and it was "regrettably unable to continue discussions with you". ScottishPower said that if BEIS wanted feedback, the decision was "due to the continued market volatility and our perceived risks around forward market purchases, even if these were to be under a government backed adjustment mechanism" (emphasis added).
(iv) A note made by Mr Cowlishaw on 13 May 2022 attributes the following statement to Mr Baker: "if want a part" – i.e. not the whole book – "should be in same process. Difficulty [REDACTED]".
(v) Given those statements, we do not find it remotely surprising that the JEAs concluded that ScottishPower had closed the door on a bid, notwithstanding the signalled possibility of HMG financial support.
(i) On 29 April 2022, Teneo spoke to [Daisy] who said its decision not to bid "all comes down to [the] regulatory landscape", with higher capital requirements, the stabilisation mechanism and "backwardation" mentioned.
(ii) Very much later on in the process, on 28 October 2022, [Daisy] submitted an indicative offer.
(i) On 6 May, Teneo held a call with Tulip to discuss the transaction, in which "forward purchases – potential funding?" was raised by Tulip, and Teneo said that it would need to see something in writing, but that it had done some thinking and needed to understand what Tulip's thinking was. Tulip was offered a meeting with the SoS but does not appear to have taken up the opportunity.
(ii) Mr Harris KC sought to suggest that Tulip had received more favourable treatment in this conversation, because Tulip was told that what had been decided upon was a hive-down structure, under which those parts of Bulb's business which Tulip wished to purchase would be "hived down" into a company which was sold. However, the letter sent to all potential bidders on in March 2022 had make it clear that bidders could bid for "some or all" of Bulb's business, with the sale taking place "either directly or via a hive-down" (something which is a commonplace mechanism for M&A transactions as BGT would have known).
(iii) The minutes of the Bulb Operations Board meeting of 24 May 2022 record "lots of activity from Tulip", and it is clear on the evidence that they instructed lawyers and undertook a considerable amount of due diligence.
(iv) On 16 June 2022, Tulip contacted Lazard to inform them "that following extensive work and review … as well as discussions with our stakeholders, we have concluded that an investment in Bulb is not in [Tulip's] best interests at the current time". Tulip pointed to the risks of the wholesale energy market and said that "we believe that an on-going HMG participation in the business is likely to be essential to help the business through the short to medium term uncertainty and underpin the valuation however it has not been clear to us if HMG has appetite for such a role".
(v) Lazard responded 40 minutes later stating that "many of the issues you have identified …. can be mitigated" and "you raise a point about Government participation". Lazard stated it wanted "to explore if a period of joint ownership … could mitigate the collateral requirement and other issues that you have identified and could be an alternative structure. It is clear that is not HMG's preferred plan but is certainly not also ruled-out".
(vi) It is not entirely clear to us what the expression "joint ownership" was intended to refer to. There is no material we have seen which suggests that it was ever contemplated the HMG would enter into a split equity arrangement with any bidder. It seems to us more likely that what had not been ruled out was HMG continuing to share the economic risks of the business (i.e. HMG financial support). That did not go materially further than the preliminary indications given to any of the Claimants, albeit it did not elicit any positive engagement from Tulip.
(vii) Lazard sent a further email to Tulip on 28 June, offering a possible arrangement to resolve working capital and hedge collateral issues (effectively a guaranteed wholesale price which would remove the need for a hedge). We return to the decision to approach Tulip, and only Tulip, in these terms at  below.
(viii) On 12 July 2022, Tulip responded saying it had concluded that "there is not a package of support that would change their position".
(ix) Lazard's later review recorded Tulip stating that the decision was due to the collateral requirement from its hedge supplier being potentially greater than the value they put on Bulb's business, the potential exposure to the business if prices were not hedged, given the price cap and the risk of retaining or attracting new customers given the negative press surrounding Bulb.
(i) It was said that there was no reason to test the offer with Tulip, and not with any of BGT, ScottishPower and E.ON, and that the implicit suggestion that BGT had withdrawn from the process was wrong.
(ii) It is clear from the Phase-2 bid report that Lazard expressly considered the position of BGT and ScottishPower. Given the matters in  below for BGT, and  above for ScottishPower, we are satisfied that Lazard could reasonably have concluded that BGT and ScottishPower had closed the door on the acquisition of the entirety of Bulb's customer book. While there is no documented reference to E.ON, we are satisfied that the view that Tulip was the only other bidder who had not closed the door on a "whole book" transaction was reasonably open to Lazard given the matters in  above.
(iii) In particular, on the evidence Tulip had conducted extensive work by way of due diligence, and their response had offered the possibility for further engagement by saying "we have concluded that an investment in Bulb is not in [Tulip's] best interests at the current time" (emphasis added).
(iv) The degree of risk of Octopus pulling out of the negotiations if the broad outline of the transaction it was discussing with the JEAs was shared more widely in the market was a matter for commercial judgment, on which Lazard and the JEAs were well-placed to form a view.
(i) Press reports of possible BGT involvement surfaced in late April, which suggested that BGT was asking for HMG support. In a conversation on 27 April, BGT told Lazard that the press coverage was unfair, had "upset a number of people there" and that Lazard might not hear from them for a while.
(ii) At the Bulb Operations Board meeting on 10 May, it was suggested that BGT was "still not engaging", and a SoS meeting was identified as one means of encouraging BGT's engagement. On 12 May, Lazard sent Mr O'Shea, the CEO of BGT and Centrica, a message from which it is clear that an SoS meeting had already been offered, and BGT's response was awaited.
(iii) On 15 May 2022, in the context of a communication on another subject, Mr O'Shea informed the SoS that BGT's interest was in taking only some of the customers (which would necessarily have involved a split book solution).
(iv) Lazard sent a further prompt to BGT on 16 May, but the Bulb Operations Board meeting on 24 May noted there was still "limited activity" from BGT.
(v) The meeting between BGT and the SoS duly took place on 9 June 2022. At that meeting, handwritten notes taken by Jane Walker (Deputy Director, Energy Markets and Consumers at BEIS) record BGT's position as being "we don't want to buy Bulb. Could take some customers … 500k max" – i.e. a response to the same effect as the 15 May communication quoted at (iii) above. The SoS indicated that selling as a "job lot" would be the preferred approach. Handwritten notes taken by an official at BEIS and the typed notes of a member of the SoS's private office (both of whom were at the meeting) are to the same effect.
(vi) We are satisfied that these notes captured the essence of Mr O'Shea's position as communicated at that meeting, which is also consistent with the internal BEIS email sent after the meeting which stated "we've had conformation that [BGT] will not bid but would be prepared to take a share of the customer book if there are no other bidders (as confirmed by them in the meeting with SoS earlier)" and that BGT "will not bid". We can see no credible reason why BEIS, which was clearly concerned by the implications of BGT dropping out of the Phase-2 process, should have formed a negative view of BGT's intentions unless that was the outlook BGT objectively conveyed to them. Indeed it is noteworthy that on 10 June, Lazard was asked to contact BGT to see if they "could be persuaded to re-enter the process" – reflecting a perception on the selling side that they had dis-engaged, and a desire to reverse that state of affairs. If, as Mr Bessell (Group Head of M&A at Centrica plc) and Mr O'Shea (of Centrica) have stated, BGT did not intend to leave "the impression that BGT would not entertain a bid and/or was not open to continuing discussions", that was nonetheless the impression they left.
(vii) Nor can we accept that BGT's statements ought reasonably to have been understood as a statement only of a desire not to acquire "the whole of Bulb the company" (as Mr Harris KC put it) rather than the entirety of Bulb's customer book (the interpretation Mr O'Shea offered once the numerous notes of the 9 June meeting had been produced). BGT's communications are consistent in their assertion of a readiness only to take some customers (limited to "500k max" as it was put at the 9 June – emphasis added).
(viii) There were subsequent text exchanges between Mr O'Shea of BGT and Ms Kotzeva of Lazard on 10 June in which Lazard expressly asked if the meeting with the SoS had "change[d] your mind on getting back into the process? We'd be happy to have you in there!" Mr O'Shea did not challenge the characterisation that BGT had left the process, but said "our position is the same. We would be willing to take some of the customers in a break up of the company". This was entirely consistent with the account of the 9 June meeting in BEIS' notes and internal email.
(ix) In his text, Mr O'Shea also referred to press stories suggesting that [Daisy] and Octopus were bidding, on which he had been asked to comment. This was a reference to a well-informed report which had appeared in The Financial Times that day, alleging that Octopus was in negotiations to buy the Bulb business, and that HMG was expected to offer a clean balance sheet, with no debt, as well as a generous financial dowry, albeit "government has not set out how much money it would be prepared to inject in the deal, and is instead waiting to see what the three bidders offer". Mr O'Shea stated "I trust no-one will be giving them cash to take on Bulb only to watch that cash disappear and come back to hit the taxpayer!!" Ms Kotzeva on behalf of Lazard replied "government support conversations as per discussion with your team – balance sheet restructuring and hedging transition only".
(x) We have not seen any material which supports a finding that there had been earlier discussions between Lazard and BGT on the subject of balance sheet restructuring and hedging transition, beyond the generalised references in the documents we have set out above. However, Ms Kotzeva was clearly referencing the possibility of such support in her message, and doing so in the context, known to Mr O'Shea, of press reports of the business being sold on a debt-free basis with a generous financial dowry. Mr O'Shea's response – which was consistent with his later communications – was not to express surprise at the fact that HMG support was in contemplation, but concern as to who it might go to. He suggested "immediate cash injection to companies with rumoured credit problems could be problematic", to which Lazard responded "Agreed!".
(xi) Later on 10 June 2022, Mr Cowlishaw sent an email to Ms Kotzeva and others saying it was very clear that BGT was "not going to bid for all customer book. Not negotiating tactic. Have been out of the sales process for some time".
(xii) Mr O'Shea says that he spoke to Ms Kotzeva of Lazard "subsequently" and confirmed that BGT remained interested in Bulb, and that he "did not limit Centrica's involvement to any particular structure". We consider the evidence on this question at  below.
(xiii) Lazard's later summary referred to BGT's concern "about government supporting a sale to an insufficiently capitalised competitor", and to BGT emphasising the need for resilience and evidence of adequate funding.
(xiv) BGT did not, in the period after 10 June, indicate any willingness to submit a further offer for Bulb's entire book, although, as we explain below, it raised the option of splitting the book again on 1 August 2022.
(i) Given the consistency and clarity of BGT's communications that it was only interested in taking some of Bulb's customers, it would have taken a particularly clear communication from BGT to alter that message.
(ii) Mr O'Shea says that he did not "limit [BGT's] involvement to any particular structure". That does not suggest that he made a positive statement of any wider interest beyond taking some of the customers, which is what would have been required.
(iii) Had there been any clear communication to this effect by BGT to Lazard, we find it inconceivable it would not have been mentioned by Lazard (not least because it would have been very welcome news). Lazard was keen to increase the competitive tension in the process, and keen for BGT to engage. Yet there is no hint in any subsequent Lazard document after 10 June (including the Phase-2 bid review) that BGT's position was other than as communicated at the meeting on 9 June and in the exchanges on 10 June.
(iv) As we explain below, when BGT engaged in further communications on 31 July, 1 August and 12 August 2022, its position was always that it did not want to buy the Bulb business, only to split the book. This is a further reason why we are not persuaded that BGT said anything to Lazard which qualified the clear messaging on 9 and 10 June, whatever Mr O'Shea's intention may have been. Nor would his request that Lazard contact Mr Bessell have reasonably been understood by Lazard as offering possibilities other than the "split book" scenario which BGT had clearly communicated was the limit of its interest.
(i) On 27 May 2022, the JEAs analysed eleven alternatives to the ongoing marketing process. "Continuing with the ongoing sale process" was identified as the best option.
(ii) On 24 June 2022, the JEAs conducted a further analysis of the option of split book sales, and once again concluded that a sale of Bulb through the ongoing sales process remained the best option.
(i) BGT had "been aware of government openness to possible support to enable a transaction, and encouraged to put forward their requirements in order to commence a discussion on possible structures but post withdrawal have noted and objected to press coverage regarding possible government cash support: "immediate cash injection to companies with rumoured credit problems would be problematic" (a clear reference to Mr O'Shea's text to Lazard of 10 June 2022). We are satisfied that this was a fair characterisation of the position.
(ii) "A competitive sale process has been run over the past four months against a highly challenging market backdrop", which had delivered only one transactable bid (the Octopus' bid).
(iii) Octopus' bid "envisages certain transitional support" regarding the lack of hedge, working capital and the trading collateral implications of rising government debt.
(iv) Octopus' bid "seems better value" than the two identified counterfactuals – keeping the business in SAR, or breaking up the book for split sales, which would be "higher risk and likely more expensive". It recommended closing the Octopus deal.
(i) [REDACTED] would have to be injected into Bulb before the sale to ensure an overall net consideration of at least £1 on its transfer to Bulb UK Operations Ltd (HiveCo). In the event, the necessary equity injection was [REDACTED]: the Equity Injection. There was also an obligation on the part of the Octopus Group, if certain conditions were met, to make a deferred equity injection of [REDACTED] on 30 September 2024.
(ii) For Structure A, under which Octopus would buy energy on the "day ahead" markets, the acquisition cost being funded by HMG, with Octopus paying HMG at the price cap six months later, a cost of [REDACTED], and a funding cost of [REDACTED] before repayments commenced.
(iii) For Structure B, a wholesale price adjustment funded by HMG over Winter 2022 of [REDACTED], working capital of [REDACTED] for up to three years and, potentially, [REDACTED] of collateral required by Octopus' wholesale supplier.
It advised that "both figures are highly uncertain and could be materially more or less depending on wholesale price movements".
"If however you believe you have landed on a structure that is superior for consumers to what we have outlined we would like to understand what that might be".
Lazard responded saying that BGT "have been part of our process" and "well aware that the book is unhedged and that government has been open to discussions relating to required support … If you have a proposition you would like to discuss please do send it in writing".
(i) a comprehensive M&A Process had been run by the JEAs and Lazard;
(ii) there had been extensive negotiations with Octopus; and
(iii) the counterfactual scenarios (postponing the sale or splitting Bulb's book) showed "less favourable anticipated outcomes" and carried "significant execution risk".
(i) deferring a sale to some point in the future;
(ii) split book sales;
(iii) invoking the SoLR regime;
(iv) restarting the sales process in July 2023;
(v) winding-down Bulb and offering its customers a financial incentive to move to other suppliers.
(i) The wholesale pricing adjustment under the Wholesale Adjustment Mechanism Agreement (the WAMA) by which HMG was to loan to Bulb for onward payment to HiveCo money to purchase energy in the period up to 31 March 2023, at an estimated cost of £4.5 billion, with Bulb/HiveCo's repayment obligation limited to the amount of the price cap:
a) the loan not being on commercial terms because the repayment amount was limited to the price cap;
b) there was an option to repay the funding on a deferred basis;
c) the interest charged on the loan would not be passed onto HiveCo, who would only be obliged to pay interest at 2% if it failed to make payments when due or exercised its right to defer payments.
(We should add, by way of parenthesis, that in economic terms, this involved HMG assuming the role of HiveCo's hedge counterparty, with HMG paying the prevailing energy costs in the market and receiving the amount of the "wholesale cost allowance" assumed by Ofgem under the Ofgem price cap when setting the amount energy companies were permitted to charge retail customers. At the date of the Octopus transaction, HiveCo was "in the money" under this "hedge" to the tune of £1.2 billion, but the ultimate position would inevitably depend on the state of the energy market over the 6 month period. We accept, however, that HMG was providing a more perfect hedge in terms of matching HiveCo's actual sourcing costs than would have been available from a market counterparty. That is because it was not limited by reference to a particular volume of energy purchases (beyond the fact that they had to be necessary for supplying HiveCo's customers), and there was no risk of any timing mismatch between the profile of demand assumed in the hedging transaction and the actual demand faced by HiveCo, and thereby avoided "volume" and "shaping" risks – although if the market moved the other way, the "perfection" of the hedge could increase the amount payable by HiveCo to Bulb).
(ii) It was envisaged that this six month period would allow HiveCo to accumulate cash reserves which could be used to collateralise a hedge entered into with a market counterparty.
(iii) A one-off adjustment ("the Stub Period Price Cap Amount") payable to HiveCo to ensure that the financials of the deal remained broadly equivalent to those as at 1 October 2022, which was the date when Octopus' offer was intended to take effect. This was effected by way of a loan from Bulb to HiveCo equivalent to the amount Bulb would have paid for wholesale electricity and gas between 1 October 2022 and completion, had it been hedged in line with the price cap methodology. It was to be repaid on the same timeline and repayment terms as the wholesale pricing adjustment.
(iv) Regulatory change protection, by allowing HiveCo to defer repayments if this was needed to protect against the costs of complying with any ringfenced protections imposed by Ofgem in respect of customer credit balances and renewables obligations. This reflected the fact that HiveCo intended, during the period that the wholesale pricing adjustment was payable, to build up working capital to collateralise a subsequent market hedge. A change in the regulatory regime ring-fencing positive customer balances would impact on that plan.
"The draft Subsidy Control Act 2022 guidance … and EU State aid law indicate that public authorities will be able to show that there is no subsidy/aid to the buyer where an open and competitive process has been followed. As Orchid's bid has been proposed following such an open, non-discriminatory, and competitive sales process, there is no subsidy to Octopus as the buyer."
"Repayment of HMG funding is a realistic outcome given that the wholesale risk has been addressed with the transaction structure and assuming that [Octopus] can run the business efficiently in line with the Ofgem price cap structure."
"The difference (15 Sept estimate £1.2bn) which HMG would otherwise bear in the counterfactual options, will be a permanent price adjustment not recoverable from the SPV – but may be recovered under the shortfall mechanism from consumer bills."
E&Y produced a final version of their report, in similar terms to the draft at , on 27 October 2022.
(i) Bulb agreed to transfer the relevant parts of its business to HiveCo by way of an ETS, to take effect on the effective date of the ETS.
(ii) Bulb agreed to transfer the shares in HiveCo to Octopus Energy Retail 2022 Ltd (Octopus BidCo) by way of an ETS.
(iii) The JEAs entered into an agreement to sell the shares in HiveCo to Octopus BidCo on the following basis:
a) Bulb agreed to inject equity into HiveCo to the extent that its liabilities exceeded its assets such that the net value of HiveCo was £1 (with provision for post-completion payments in both directions if the calculation of the amount necessary to achieve the £1 net value changed);
b) Octopus BidCo agreed to inject £108m into HiveCo, with a further equity injection of not less than £42m on 30 September 2024 if certain conditions were met;
c) Octopus agreed to share any profit made in the financial-year ending April 2023 with Bulb.
(iv) HiveCo was to operate as a fully ringfenced entity within the Octopus group, with HiveCo only able to deal with other group entities on an arms-length basis, and restrictions on the payment of dividends and management fees by HiveCo to the wider group. These restrictions would only be removed once all payments due from HiveCo to Bulb had been paid.
(v) Octopus BidCo, Bulb and the JEAs entered into the WAMA.
(vi) BEIS entered into the Amendment and Restatement Agreement with Bulb, amending the AFA and providing Bulb with the loan financing it would need to discharge its obligations under the WAMA.
(vii) Octopus BidCo, its parent, HiveCo and its wholesale energy supplier entered into a supply agreement.
"What in substance is being asked for by BGT, SPR and E.ON is interim relief in the context of their application challenging the lawfulness of the Secretary of State's decision. It is common ground that interim relief can be applied for, and is commonly granted, in the Administrative Court; and that such relief could include suspending the effect of the Secretary of State's decision pending the resolution of the challenge to it."
He identified a number of reasons why it was the Administrative Court which was the appropriate forum for considering an application for interim relief.
The Claimants' Submissions on the Counterfactual Position
(i) Mr Bessell, in his first witness statement on 28 November 2022, stated;
"if potential bidders had been notified during the sale process that there was, in fact, a significant subsidy on offer from the Government, as we now know is to be included as part of the Proposed Transaction, and had Government described to us the terms of that subsidy, that would have naturally increased the attractiveness of the Bulb opportunity," and "we would have been able to reassess the level of risk involved in bidding for all or some of the unhedged book and may very well have submitted a bid that was more competitive than the one that the Government agreed to".
(ii) Mr O'Shea, in his first witness statement of 20 January 2023, stated that "had BGT been notified of the availability and nature of the financial support from the Government … I am confident that we would have been able to put forward a bid for the entire Bulb customer book that was materially better than Octopus' and that I would have been comfortable to recommend to the Centrica Board that it formally approve such a bid and the subsequent transaction." The Board had stated that "knowing what it now knows about the Government support available and the Transaction structure, including the ring-fencing arrangements in relation to the target company, and taking into account that this is now a hypothetical question that would have involved consideration of a range of factors at the time, the Board would have considered my recommendation to submit a binding bid favourably and there is a high probability the Board would have wished to proceed to transact".
(iii) In his second witness statement of 20 January 2023, Mr Bessell said "had I received the emails that Tulip did on transaction parameters and what might be acceptable to Government, I would have been keen to explore that and would have considered that there was a deal to be done". Referring to Mr O'Shea's evidence, he agreed that "had BGT known about the availability and nature of Government support available, it would have been in a position to put forward a bid which would have been materially better than Octopus'".
(i) In his first witness statement of 28 November 2022, Mr Ward referred to ScottishPower losing "the ability to compete for … a unique opportunity" to achieve a one-off increase in customer base.
(ii) In his second witness statement of 20 January 2023, Mr Baker (Director of the Corporate Development Team at Iberdrola SA, ScottishPower's ultimate shareholder) said that if he had been provided with the information in Table 1 of BEIS' discussion paper of 22 March 2022 (which was not provided to any bidder), it "may well have been sufficient to enable us to continue engaging in the Sales Process"; that if Lazard had re-engaged with ScottishPower as it did with Tulip, this "would certainly have required us to reconsider our position with respect to the Sales Process and would likely have led us to" take certain action; and that "knowing what we now know about the transaction and its backing from Government, if the Sales Process were to be re-run now and we received comfort that the Government support package tendered was realistic as well as the disaggregated data previously requested, I believe ScottishPower would devote material resources to participating in such a re-run process" and that it would be a process "in which many market participants would seriously consider participating."
(iii) In his second statement of 20 January 2023, Mr Ward agreed with Mr Baker's statement as to what would happen if the M&A Process were to be re-run, while suggesting that there were other credible options, including a SoLR process, with ScottishPower being "very likely to" take certain action if a particular package had been offered.
(i) BGT's evidence, which underwent the "firming up" often seen in litigation, was essentially focussed, not on the counterfactual of what would have happened if they had had the same statements made to them as were initially made to Octopus, which, following prompt and intense engagement by Octopus, culminated in the final transaction, but on what their position would have been if they had been aware of the terms of the final transaction.
(ii) That is also true of ScottishPower's and E.ON's evidence, and even when less confident statements of a willingness to participate in the process are made, they are premised on more information being provided to them than was provided to Octopus which led to its decision to re-engage.
(iii) Even on the Claimants' case, we do not believe either of these counterfactuals are appropriate. What the Claimants have proved conspicuously unable to say is that the statements which were sufficient to lead Octopus to re-engage would have led them to engage and remain in the process to the point of actually bidding. We do not find this surprising, because we are not persuaded that there was any significant difference between the content of the "teasers" of HMG support given to potential bidders, only in the reactions of the recipients to those teasers. We would also observe that, at least from a commercial perspective, a process which allowed potential bidders not to participate in the bidding process, thereby reducing the commercial tension in that process, buy to be offered the chance to transact on the terms of the final deal (negotiated in the context of that reduced commercial tension) would be wholly unworkable and inimical to a competitive M&A transaction. The "after the event" counterfactual is also inappropriate because it offers the Claimants access to information, and leaves them open to the influence, of factors which would not have been part of the process "in real time" – including the identity of the successful bidder, and a knowledge of how far HMG was prepared to go.
(iv) As to the evidence of what would have happened if BGT and ScottishPower had received the approach made to Tulip on 28 June 2022, we have already noted that, as a matter of commercial judgment, it was reasonably open to Lazard to reach the view that only Tulip should be approached. In any event, the counterfactual evidence from BGT and ScottishPower falls far short of showing that a similar approach would have led them to re-engage to the point of making a bid.
(v) Even at this stage, both ScottishPower and E.ON make it clear that their preference was for a split book process, and we are confident (based on its consistent contemporaneous messaging) that this was BGT's strong preference too (BGT's reliance on its November 2021 bid ignoring the very significant change both in the commercial landscape and its own messaging after that process was pulled). Both Lazard and the JEAs had advised that the Octopus bid was preferable to a counterfactual which involved a split book process. We return to that recommendation below.
The Legal Framework: the Energy Market
The EAs 2004 and 2011
(i) Section 158(2) provides that "the management by the energy administrator of a company of any affairs, business or property of the company must be carried out for the purpose of achieving the objective of the energy administration as quickly and as efficiently as is reasonably practicable."
(ii) Section 158(3) provides that:
"the energy administrator of a company must exercise and perform his powers and duties in the manner which, so far as it is consistent with the objective of the energy administration to do so, best protects—
(a) the interests of the creditors of the company as a whole; and
(b) subject to those interests, the interests of the members of the company as a whole."
(iii) Section 165 allows the SoS to make loans or grants to the company "of such amounts as it appears to him appropriate to pay or lend for achieving the objective of the energy administration".
(i) At paragraph 2, that it is for the energy administrator, while the energy administration order is in force, to act on behalf of the old energy company in the doing of anything that it is authorised or required to be done by or under the Schedule.
(ii) At paragraph 3(4), that the ETS will take effect at a time appointed by the court (but the court is not to appoint a date until the ETS has been approved by the SoS: paragraph 3(5)).
(iii) At paragraph 3(6), that the SoS may only modify the ETS with the consent of the transferring company (through its administrators) and the transferee company.
(iv) At paragraph 3(7), that "in deciding whether to approve an energy transfer scheme, the Secretary of State must have regard, in particular, to— (a) the public interest; and (b) the effect the scheme is likely to have (if any) upon the interests of third parties."
(v) At paragraph 3(8) provides that "before approving an energy transfer scheme, the Secretary of State must consult GEMA" (but mandates no other consultation).
The Companies Court's Supervision of Administrators
"The usual structure is that the special regime draws on some of the principles underpinning the administration regime which is available for companies generally, but includes additional purposes which will normally take priority over, or even replace altogether, the objectives for which an ordinary administrator is required to perform his functions."
"12-008 The general attitude of the court when: (i) considering the strategies proposed by the prospective administrator in support of administration applications under Sch. B1.para. 12; or (ii) considering or reviewing decisions, acts and transactions of the administrator undertaken within the scope of his extensive statutory powers, is one of deference to the commercial judgment of insolvency practitioners as experts and regulated professionals. This reflects a broad judicial understanding of the nature of the administrator's task and the challenges that he faces on appointment; an appreciation, in particular, that the administrator will invariably be operating at pace in difficult and urgent circumstances which dictate the need for quick decision-making, often based on less than perfect information, if value is to be preserved and the purpose of administration achieved. It also reflects an institutional judgment that licensed professionals are better placed than the court to formulate and implement commercial strategy according to the circumstances in which they find themselves.
12-009 Accordingly, the exercise of the administrator's wide powers, inter alia, to manage the company's business and to realise its assets are regarded as matters for the commercial judgment of the administrator, rather than as being appropriate matters for directions by the court. In the words of David Richards J, the court 'would not normally give directions to an administrator as to the means by which he should market assets, any more than as to which particular deal to make.' Consistent with this approach, the court will not usually be prepared to review the commercial strategy that the administrator wishes to pursue in advance. Thus, the court will not generally interfere where the administrator wishes to dispose of the company's assets speedily, in order to preserve goodwill that may otherwise rapidly diminish, before creditors have received his proposals or have had the opportunity to consider and approve them in their decision-making procedure.
12-014 … The critical point to be borne in mind is that the court will generally allow the administrator a wide measure of independence and latitude in the performance of his functions, having regard both to the statutory framework which vests the management of the company's affairs in him and to the commercial exigencies that he faces."
The Issues For Determination
(i) the Funding Decision () and
(ii) the Approval Decision ();
(together the Decisions).
The Public Law Grounds
(i) The Decisions were unlawful because the SoS was wrongly directed, or because he wrongly directed himself, that the M&A Process had been fair, open, non-discriminatory and competitive.
(ii) The Decisions were unlawful because the M&A Process failed to comply with the principles on open competition and non-discrimination for the electricity and gas supply markets found in Article 303 of the Trade and Co-operation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland of the other part (the TCA).
(iii) The Decisions were unlawful because the M&A Process breached a duty on the part of the SoS to act fairly.
(iv) The Decisions were unlawful because:
a) the SoS took account of irrelevant considerations;
b) the SoS failed to take account of relevant considerations, including those under para 3(7) of Schedule 21 to EA 2004;
c) the SoS did not make proper enquiries of Ofgem;
d) they were not decisions that a reasonable decision-maker would have made.
(v) The Decisions were unlawful because they were taken in breach of a common law duty of consultation.
The Subsidy Control Grounds
(i) The Funding Decision failed to meet the requirements of the subsidy control principles set out in Article 366(1) of the TCA on one or more of the following bases:
a) The SoS wrongly proceeded on the basis that the M&A process was open, non-discriminatory and competitive for the purposes of establishing (i) whether the subsidy provided to Bulb and HiveCo satisfied the subsidy control principles set out in Article 366(1) of the TCA and (ii) whether Octopus was a recipient of that subsidy.
b) The Defendant's reasoning on the application of Article 366(1) TCA to the subsidy took into account irrelevant considerations and/or failed to have regard to relevant considerations and/or failed to make adequate enquiries in (i) placing weight on particular benchmarks and comparators to the amount of subsidy and/or (ii) in considering (or failing to consider) particular aspects of the subsidy, including "zero interest" financing to HiveCo.
c) For the purposes of Articles 366(1)(b) and (c), the regulatory change protection that has been provided to HiveCo/Octopus was not linked to any of the Defendant's objectives and/or was disproportionate.
d) For the purposes of Article 366(1)(f), the Funding Decision failed properly to take into account the potential scale of distortions to competition and to trade and investment caused by the subsidy.
e) For the purposes of Article 366(1) the Defendant erred in law in identifying, as objectives of the subsidy, the need to remedy a perceived "market failure", the avoidance of social hardship from a "hard close insolvency" and/or allowing a "key challenger" to remain in the market.
(ii) The Funding Decision was unlawful on the basis that the subsidy included an unlimited guarantee prohibited by Article 367(2) TCA.
(iii) The Funding Decision was unlawful under Article 367(3)-(4) TCA for some or all of the following reasons:
a) The Defendant erred in law in concluding that the subsidy responded to a national or global economic emergency for the purposes of Article 364(3) TCA.
b) The Defendant erred in law in concluding, for the purposes of Article 367(3) TCA, that Octopus contributed significant funds or assets to the cost of restructuring, or that there was a credible restructuring plan.
c) For the purposes of Article 367(4) TCA, the Defendant erred in law in identifying, as "objectives of public interest" of the subsidy, the need to remedy a severe market failure and the avoidance of social hardship.
(iv) The Approval Decision was vitiated because the Funding Decision involved the grant of an unlawful subsidy.
"Where the High Court considers that there has been undue delay in making an application for judicial review, the court may refuse to grant–
(a) leave for the making of the application; or
(b) any relief sought on the application,
if it considers that the granting of the relief sought would be likely to cause substantial hardship to, or substantially prejudice the rights of, any person or would be detrimental to good administration."
"The claim form must be filed–
(a) promptly; and
(b) in any event not later than 3 months after the grounds to make the claim first arose."
This is a reference to the legally operative decision, for example a planning permission: see R v Hammersmith and Fulham London Borough Council, ex parte Burkett  UKHL 23;  1 WLR 1593. The date upon which a claimant becomes aware that they may have grounds in law for seeking to challenge a decision is irrelevant to the question of when the grounds to make a claim first arise. It may, however, be relevant to the question of whether the claim was filed promptly or whether time should be extended to bring the claim: see R (Braithwaite and Melton Meadows Properties Ltd) v East Suffolk Council  EWCA Civ 1716, at .
"At the time bids were invited there was no Government support being offered to potential bidders. This background informed the approach which potential bidders, such as ScottishPower, took when deciding whether or not to submit a bid for Bulb."
The Amenability of the Decisions to Judicial Review and the Scope and Standard of Review
"(a) the public interest; and
(b) the effect the scheme is likely to have (if any) upon the interests of third parties."
"It does not seem likely that a decision by a state enterprise to enter into or determine a commercial contract to supply goods or services will ever be the subject of judicial review in the absence of fraud, corruption or bad faith."
"63. The power of the Minister of Energy to undertake negotiations with CT Power as part of the conduct of the business of the Government is a wide one, conferring on the Minister a very wide discretion as to how best to proceed. The implication is that the Minister is permitted to participate in the commercial market in the usual way, i.e. through the exercise of the full bargaining power available to the Government in order to secure the best commercial deal possible and thereby promote the public interest. With that end in view, a court should be astute to ensure that application of public law standards in relation to the Minister does not cut down or undermine that bargaining power. Nor should public law standards be applied in such a way as to give a potential contracting counterparty a negotiating advantage which has not been bargained for.
64. In negotiating a commercial contract on behalf of the Government, the Minister, as a public authority, is not entirely free from constraints arising under public law. He is obliged to comply with basic public law standards which ensure that he properly seeks to promote the public interest. Accordingly, his decision-making as to how to conduct negotiations before a contract is entered into might be brought into question if, by way of purely hypothetical example, he acted out of personal spite or because he had been bribed. As a result, the potential counterparty is not exposed to what, if they were negotiating with another party, might be the pure capriciousness of that private party in deciding whether to enter into the contract and on what terms."
"What does fairness require in the present case? My Lords, I think it unnecessary to refer by name or to quote from, any of the often-cited authorities in which the courts have explained what is essentially an intuitive judgment. They are far too well known. From them, I derive that (1) where an Act of Parliament confers an administrative power there is a presumption that it will be exercised in a manner which is fair in all the circumstances. (2) The standards of fairness are not immutable. They may change with the passage of time, both in the general and in their application to decisions of a particular type. (3) The principles of fairness are not to be applied by rote identically in every situation. What fairness demands is dependent on the context of the decision, and this is to be taken into account in all its aspects. (4) An essential feature of the context is the statute which creates the discretion, as regards both its language and the shape of the legal and administrative system within which the decision is taken. (5) Fairness will very often require that a person who may be adversely affected by the decision will have an opportunity to make representations on his own behalf either before the decision is taken with a view to producing a favourable result; or after it is taken, with a view to procuring its modification; or both. (6) Since the person affected usually cannot make worthwhile representations without knowing what factors may weigh against his interests fairness will very often require that he is informed of the gist of the case which he has to answer."
Alleged breach of duty of consultation
The alleged analogy with the Public Contracts Regulations 2015
The alleged regard to irrelevant considerations
The alleged failure to have regard to relevant considerations
The allegation that the M&A Process was unlawful because it did not comply with Article 303 of the TCA
Conclusion on the Public Law grounds
The Subsidy Control Grounds
The Subsidy Control Regime under the TCA
The Status of the TCA under UK Domestic Law
"Existing domestic law has effect on and after the relevant date with such modifications as are required for the purposes of implementing in that law [the TCA] … so far as the agreement concerned is not otherwise so implemented and so far as such implementation is necessary for the purposes of complying with the international obligations of the United Kingdom under the agreement."
"[Section 29] … amounts to a blanket, generic, mechanism to achieve full implementation, without the need for any further parliamentary or other executive intervention.
The section transposes the TCA onto domestic law, expressly and mechanistically changing it in the process. Following section 29, domestic law on an issue means what the TCA says."
The Approach to Interpretation
"1. The provisions of this Agreement and any supplementing agreement shall be interpreted in good faith in accordance with their ordinary meaning in their context and in light of the object and purpose of the agreement in accordance with customary rules of interpretation of public international law, including those codified in the Vienna Convention on the Law of Treaties, done at Vienna on 23 May 1969.
2. For greater certainty, neither this Agreement nor any supplementing agreement establishes an obligation to interpret their provisions in accordance with the domestic law of either Party."
1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes: (a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty; (b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.
3. There shall be taken into account, together with the context: (a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; (c) any relevant rules of international law applicable in the relations between the parties.
4. A special meaning shall be given to a term if it is established that the parties so intended."
"Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:
(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or unreasonable."
The Substantive Provisions of the TCA in Issue
"With the objective of ensuring fair competition, each Party shall ensure its regulatory framework for the production, generation, transmission, distribution or supply of electricity or natural gas is non-discriminatory with regard to rules, fees and treatment."
"1. For the purposes of this Chapter, the following definitions apply:
(b) 'subsidy' means financial assistance which:
i) arises from the resources of the Parties, including:
(A) a direct or contingent transfer of funds such as direct grants, loans or loan guarantees;
(B) the forgoing of revenue that is otherwise due; or
(C) the provision of goods or services, or the purchase of goods or services;
(ii) confers an economic advantage on one or more economic actors;
(iii) is specific insofar as it benefits, as a matter of law or fact, certain economic actors over others in relation to the production of certain goods or services; and
(iv) has, or could have, an effect on trade or investment between the Parties."
"Subsidies that are granted on a temporary basis to respond to a national or global economic emergency shall be targeted, proportionate and effective in order to remedy that emergency. Articles 367 and 374 do not apply to such subsidies."
1. With a view to ensuring that subsidies are not granted where they have or could have a material effect on trade or investment between the Parties, each Party shall have in place and maintain an effective system of subsidy control that ensures that the granting of a subsidy respects the following principles:
(a) subsidies pursue a specific public policy objective to remedy an identified market failure or to address an equity rationale such as social difficulties or distributional concerns ('the objective');
(b) subsidies are proportionate and limited to what is necessary to achieve the objective;
(c) subsidies are designed to bring about a change of economic behaviour of the beneficiary that is conducive to achieving the objective and that would not be achieved in the absence of subsidies being provided;
(d) subsidies should not normally compensate for the costs the beneficiary would have funded in the absence of any subsidy;
(e) subsidies are an appropriate policy instrument to achieve a public policy objective and that objective cannot be achieved through other less distortive means;
(f) subsidies' positive contributions to achieving the objective outweigh any negative effects, in particular the negative effects on trade or investment between the Parties.
2. Without prejudice to paragraph 1 of this Article, each Party shall apply the conditions set out in Article 367, where relevant, if the subsidies concerned have or could have a material effect on trade or investment between the Parties.
3. It is for each Party to determine how its obligations under paragraphs 1 and 2 are implemented in the design of its subsidy control system in its own domestic law, provided that each Party shall ensure that the obligations under paragraphs 1 and 2 are implemented in its law in such a manner that the legality of an individual subsidy will be determined by the principles".
"Prohibited subsidies and subsidies subject to conditions
(1) The categories of the subsidies referred to in Article 366(2) and the conditions to be applied to them are as follows …
Subsidies in the form of unlimited guarantees
(2) Subsidies in the form of a guarantee of debts or liabilities of an economic actor without any limitation as to the amount of those debts and liabilities or the duration of that guarantee shall be prohibited.
Rescue and restructuring
(3) Subsidies for restructuring an ailing or insolvent economic actor without the economic actor having prepared a credible restructuring plan shall be prohibited. The restructuring plan shall be based on realistic assumptions with a view to ensuring the return to long-term viability of the ailing or insolvent economic actor within a reasonable time period. During the preparation of the restructuring plan, the economic actor may receive temporary liquidity support in the form of loans or loan guarantees. Except for small and medium-sized enterprises, an economic actor or its owners, creditors or new investors shall contribute significant funds or assets to the cost of restructuring. For the purposes of this paragraph, an ailing or insolvent economic actor is one that would almost certainly go out of business in the short to medium term without the subsidy.
(4) Other than in exceptional circumstances, subsidies for the rescue and restructuring of insolvent or ailing economic actors should only be allowed if they contribute to an objective of public interest by avoiding social hardship or preventing a severe market failure, in particular with regard to job losses or disruption of an important service that is difficult to replicate. Except in the case of unforeseeable circumstances not caused by the beneficiary, they should not be granted more than once in any five year period."
1. With respect to any subsidy granted or maintained within its territory, each Party shall within six months from the granting of the subsidy make publicly available, on an official website or a public database, the following information:
(a) the legal basis and policy objective or purpose of the subsidy;
(b) the name of the recipient of the subsidy when available;
(c) the date of the grant of the subsidy, the duration of the subsidy and any other time limits attached to the subsidy; and
(d) the amount of the subsidy or the amount budgeted for the subsidy.
3. In addition to the obligation set out in paragraph 1, the Parties shall make subsidy information available in accordance with paragraph 4 or 5.
5. For the United Kingdom, compliance with paragraph 3 means that the United Kingdom shall ensure that:
(a) if an interested party communicates to the granting authority that it may apply for a review by a court or tribunal of:
(i) the grant of a subsidy by a granting authority; or
(ii) any relevant decision by the granting authority or the independent body or authority;
(b) then, within 28 days of the request being made in writing, the granting authority, independent body or authority shall provide that interested party with the information that allows the interested party to assess the application of the principles set out in Article 366, subject to any proportionate restrictions which pursue a legitimate objective, such as commercial sensitivity, confidentiality or legal privilege.
The information referred to in point (b) of the first subparagraph shall be provided to the interested party for the purposes of enabling it to make an informed decision as to whether to make a claim or to understand and properly identify the issues in dispute in the proposed claim."
"Independent authority or body and cooperation
Each Party shall establish or maintain an operationally independent authority or body with an appropriate role in its subsidy control regime. That independent authority or body shall have the necessary guarantees of independence in exercising its operational functions and shall act impartially."
"Courts and tribunals
1. Each Party shall ensure, in accordance with its general and constitutional laws and procedures, that its courts or tribunals are competent to:
(a) review subsidy decisions taken by a granting authority or, where relevant, the independent authority or body for compliance with that Party's law implementing Article 366;
(b) review any other relevant decisions of the independent authority or body and any relevant failure to act;
(c) impose remedies that are effective in relation to point (a) or (b), including the suspension, prohibition or requirement of action by the granting authority, the award of damages, and the recovery of a subsidy from its beneficiary, if and to the extent that those remedies are available under the respective laws on the date of entry into force of this Agreement;
(d) hear claims from interested parties in respect of subsidies that are subject to this Chapter where an interested party has standing to bring a claim in respect of a subsidy under that Party's law.
3. Without prejudice to the obligations to maintain or, where necessary, to create the competencies, remedies and rights of intervention referred to in paragraphs 1 and 2 of this Article, and Article 373, nothing in this Article requires either Party to create rights of action, remedies, procedures, or widen the scope or grounds of review of decisions of their respective public authorities, beyond those existing under its law on the date of entry into force of this Agreement."
The SCA 2022
(i) [5.60], addressing restructuring subsidies, which stated that "as a general rule, the contribution by the enterprise or its owners, creditors, or investors should amount to at a minimum 50% of the total cost of the restructuring for large enterprises" but that "lesser contributions may be considered for large enterprises where the public authority is satisfied that the contribution remains substantial and the lesser contribution is justified on account of exceptional circumstances or by particular hardship".
(ii) [5.76], stating that "public authorities should require the enterprise to agree to certain undertakings regarding its conduct on the market for the duration of the restructuring plan" which should aim to ensure that restructuring support is used for its intended purpose and not to distort competition. It is specifically stated that the enterprise should undertake to: refrain from using restructuring support to expand its market position through the acquisition of shares or assets, unless these acquisitions are strictly necessary to ensure its long-term viability; and refrain from using the fact that it is receiving restructuring support in its marketing activities.
(iii) [5.78] provides that the public authority should consider whether any actions relating to the structure of the enterprise, such as asset divestments, may be required to avert or reduce the potentially distortive effects of the subsidy.
"Financial assistance will not confer an economic advantage if it could reasonably be considered to have been given on the same terms as it could have been obtained on the market. This is known as the Commercial Market Operator (CMO) principle."
"where seeking to rely on the CMO principle, it is important that public authorities obtain sufficient evidence to show that the financial assistance provided could be made available in the market by a private operator with commercial objectives and is provided on terms that would be acceptable to such a private operator. In certain instances, public authorities can establish compliance with the CMO principle directly by using evidence that is specific to the financial assistance in question, for example where financial assistance is given at the same time and on the same terms as a significant investment by a private operator (also known as 'pari passu'). However, other evidence based assessments may be undertaken, including the use of benchmarking and profitability analysis."
"any evaluation of compliance with the CMO should be undertaken with input from experts with appropriate skills and experience" and that "in cases where the commercial assessment is not straightforward, it is recommended that public authorities commission a reputable third party to conduct a report as evidence that the actions proposed to be taken are in accordance with the CMO principle."
"where financial assistance concerns the sale or purchase of goods or services … public authorities can show compliance with the CMO principle where the financial assistance is carried out through a procurement process which is tendered at the market price and is open and competitive. To rely on this method, public authorities should ensure that the procurement process:
• gives equal and non-discriminative treatment to all bidders;
• is open and transparent; and
• is carried out in a proportionate manner."
"where public authorities are subject to public procurement rules, evidence of compliance with these rules will assist in demonstrating compliance with the CMO principle."
(v) [15.65], that "in some instances, public authorities may receive only one bid in a tendered process", in which case:
"it is key that public authorities are able to demonstrate that the process made it possible for more than one tenderer to submit a bid, and that there were adequate safeguards in place to ensure genuine and effective competition in the procurement process. Public authorities may also seek to verify that the outcome corresponds to the market price, using additional analysis, such as benchmarking analysis."
"public authorities may seek to undertake further analysis, such as benchmarking or profitability analysis, in order to determine further whether the price of the awarded tender is on market terms."
"the presence simply of some kind of competitive process is not sufficient to demonstrate that the financial assistance is not a subsidy."
"where conditions for a subsidy are met, a competition will not eliminate the presence of a subsidy. However, a competition that applies objective and appropriate assessment criteria can assist public authorities to demonstrate that the subsidy is the minimum that is necessary to achieve the objective of the subsidy, as required by the subsidy control principles."
(ix) Finally, [15.72]:
"public authorities may also adopt other methods of economic analysis, that are based on objective and reliable data in order to assess compliance with the CMO principle"
including benchmarking analysis ([15.73]) and profitability analysis ([15.75]).
The Standard of Review
(i) Prima facie the TCA does not have direct effect according to its own terms but this is without prejudice to how the UK decides to implement the TCA as a matter of domestic law.
(ii) Parliament has implemented the TCA into domestic law via the EUFRA 2020, in particular section 29. Section 29 does not lay down a principle of interpretation but is more fundamental and amounts to "a blanket, generic, mechanism to achieve full implementation, without the need for any further Parliamentary or other Executive intervention": see . The section transposes the TCA into domestic law, expressly and mechanistically changing it in the process. Following section 29 domestic law on an issue means what the TCA says: see .
(iii) This is subject to two statutory clarifications. The first of these is that it applies only so far as required, i.e. it does not modify domestic law that is otherwise already consistent with the TCA. The second is not material for present purposes.
(iv) There will be many circumstances where a court must determine the meaning of domestic law by reference to the TCA. This is recognised in section 30 of the EUFRA 2020. That provision cross-refers to the TCA, which itself incorporates the 1969 Vienna Convention on the Law of Treaties: see section 30 and Article 4 of the TCA on 'public international law'.
"A court or tribunal must have regard to Article 4 of the Trade and Cooperation Agreement (public international law) when interpreting that agreement or any supplementing agreement."
"1. Each Party shall ensure, in accordance with its general and constitutional laws and procedures, that its courts or tribunals are competent to:
(a) review subsidy decisions taken by a granting authority or, where relevant, the independent authority or body for compliance with that Party's law implementing Article 366;
(c) impose remedies that are effective in relation to point (a) …, including the suspension, prohibition or requirement of action by the granting authority, the award of damages, and the recovery of a subsidy from its beneficiary, if and to the extent that those remedies are available under the respective laws on the date of entry into force of this Agreement;
(d) hear claims from interested parties in respect of subsidies that are subject to this Chapter where an interested party has standing to bring a claim in respect of a subsidy under that Party's law.
3. Without prejudice to the obligations to maintain or, where necessary, to create the competencies, remedies and rights of intervention referred to in paragraphs 1 and 2 of this Article, and Article 373, nothing in this Article requires either Party to create rights of action, remedies, procedures, or widen the scope or grounds of review of decisions of their respective public authorities, beyond those existing under its law on the date of entry into force of this Agreement. …"
Footnote 1 states that, for greater certainty, the law of the United Kingdom for the purposes of this Article does not include any law [i] having effect by virtue of section 2(1) of the European Communities Act ("ECA") 1972, as saved by section 1A of the European Union (Withdrawal) Act 2018, or [ii] passed or made under, or for a purpose specified in, section 2(2) of the ECA 1972. This makes it clear therefore that what is meant by domestic law in this context does not include that part of domestic law which had direct effect from EU law.
"Accordingly, even where, as here, the relevant decision maker has carried out the balancing exercise, and has not made any errors of primary fact or principle and has not reached an irrational conclusion, so that the only issue is the proportionality of the decision, the court cannot simply frank the decision, but it must give the decision appropriate weight, and that weight may be decisive. The weight to be given to the decision must depend on the type of decision involved, and the reasons for it. There is a spectrum of types of decision, ranging from those based on factors on which judges have the evidence, the experience, the knowledge, and the institutional legitimacy to be able to form their own view with confidence, to those based on factors in respect of which judges cannot claim any such competence, and where only exceptional circumstances would justify judicial interference, in the absence of errors of fact, misunderstandings, failure to take into account relevant material, taking into account irrelevant material or irrationality."
Did the SoS wrongly proceed on the basis that the M&A process was open, non-discriminatory and competitive for the purposes of establishing:
(i) whether subsidy provided to Bulb and HiveCo satisfied the subsidy control principles set out in Article 366(1) of the TCA and
(ii) whether Octopus was a recipient of that subsidy.
(i) either involve no subsidy, because the transaction is being done on CMO terms (which is the SoS's case so far as the alleged subsidy to Octopus is concerned); or
(ii) that the subsidy is the minimum necessary (on the basis that, where a CMO would not transact without some form of subsidy, the bid process will have elicited the "most competitive" subsidy) (which is of particular relevance to the subsidy which it is agreed was provided to HiveCo).
Once the essentially evidentiary purpose of the tender process is recognised, BGT's submission that "the JEAs have no particular experience in transparency and fairness" rather misses the point. The process was simply one means of obtaining a market value bid, something which was very much the particular expertise of the JEAs and Lazard.
(i) However, it is clear that it is not the only means of "establishing compliance with market conditions". §83 refers to "situations in which the transaction's compliance with market conditions can be directly established through transaction-specific market data and situations in which, due to the absence of such data, the transaction's compliance with market conditions has to be assessed on the basis of other available methods". The Notice identifies two other available methods:
a) "where the transaction is carried out 'pari passu' by public entities and private operators"; and
b) "where it concerns the sale and purchase of assets, goods and services (or other comparable transactions) carried out through a competitive, transparent non-discriminatory and unconditional tender procedure".
(ii) A "transparent, non-discriminatory and unconditional tender procedure" is not, therefore a necessary means of establishing compliance with the CMO principle. The Notice at §97 also refers to compliance with market conditions being demonstrated by benchmarking or other assessment methods, including "independent studies". It refers in this connection to the decision of the CJEU in C-14/12P, C-215/12P & C-223/12P Land Burgenland v Commission  ECLI:EY:C:2013:682,  which stated that "for the purposes of checking the market price, the national authorities may take into consideration … any expert's report prepared at the time of transfer". We were referred to other materials supporting the use of valuations as an alternative to an "unconditional bidding procedure", including the Commission "Guidance Paper on state aid-compliant financing, restructuring and privatisation of State-owned enterprises" (Staff Working Document, February (2012), p.13.
(iii) Nor is a "transparent, non-discriminatory and unconditional tender process" always sufficient. At §89, the Notice provides that if there is such a process "it can be presumed that those transactions are in line with market conditions", but if (however "transparent, non-discriminatory and unconditional" the process), only one bid is made, the Notice provides at §93 that "the procedure would not normally be sufficient to ensure a market price, unless either (i) there are particularly strong safeguards in the design of the procedure ensuring genuine and effective competition and it is not apparent that only one operator is realistically available to submit a credible bid or (ii) the public authorities verify through additional means that the outcome corresponds to the market price".
(iv) At §105, the Notice observes that "prudent market economy operators typically assess their interventions by using several different methodologies" and "the presence of complementary valuation methodologies corroborating each other's findings will be considered a positive indication when assessing whether a transaction is in line with market conditions".
(i) The M&A process was conducted (as it would have been in the case of a disposal by a prudent market operator) with the involvement of expert advisers in the form of Lazard and the JEAs.
(ii) In the "Phase II Bid Review and Next Steps Recommendation" document, Lazard advised the JEAs that "a competitive sales process has been run over the past four months", summarised what that process had involved, compared the Octopus offer with other "precedent transactions" and recommended the Orchid transaction.
(iii) In their M&A Recommendations paper of 28 September 2022, the JEAs advised the SoS that, together with Lazard, they had run "a comprehensive M&A process … over the last several months" and undertaken a "detailed analysis of the counterfactuals"; that the M&A process was "comprehensive", and the JEAs expressed the expert assessment that the bid which emerged from that process was "the value that the market is placing on Bulb in the current sector environment."
(iv) BEIS had itself followed that process, receiving regular updates in the form of weekly and monthly report packs and periodic reports. Further, it had made it clear to the JEAs that the process needed to be fair and capable of withstanding scrutiny, making specific observations on aspects of the process as necessary: - and . The SoS was in a position to, and did, form his own informed assessment of the extent to which he could rely upon the outcome of the exercise which had been conducted, and the expertise of those conducting it.
(v) The JEAs' recommendation did not rest solely on the outcome of the M&A Process, but was supported by counterfactual analysis and benchmarking analysis which had been performed by Lazard as part of the Phase II Bid Review.
(vi) BEIS commissioned an independent "high level analysis" of the JEAs' recommendations from E&Y, including as to "whether Teneo has followed an appropriate process", on Octopus' offer and on the counterfactual analysis performed by Teneo, which did not raise any issues of concern.
(i) First, the suggestion that the entire M&A Process was flawed because the availability of HMG support had not been pro-actively publicised to bidders at the outset, but it had been left to the bidders to formulate their requirements (i.e. the issue had been "market led" rather than HMG-led). We are satisfied that this was a matter of judgment, and (as we explain at (ii) below), we are satisfied the JEAs, Lazard and BEIS all supported the approach taken. It is only too easy to see what criticisms might have been made if HMG had opened the process with a clear statement of its readiness to provide significant financial support to potential bidders. Indeed we note that at the early stages of the M&A Process, the JEAs observed on 5 April 2022 that it was "difficult to assess the extent to which a purchaser may require the payment of a dowry" and that "a purchaser may request a lower level of financial support (or none)".
(ii) Second, we reject the Claimants' contention that in adopting the course in (i) above, the SoS was ignoring or failing to follow Lazard's and/or the JEAs' advice. Mr Cowlishaw of Teneo confirms in his evidence that Lazard and Teneo agreed with this approach, at least in the first instance, for various commercial reasons which he sets out, while acknowledging that the matter had to be kept under review.
(iii) Third, we reject BGT's contention that there was unfairness (which, in the present context, must mean that the reliability of the M&A process as a means of establishing market value was undermined) because information provided to one bidder in the context of the specific negotiations with that bidder was not automatically shared with other bidders (criticising an early statement by BEIS that "we'd be keen to minimise the assurances provided to what is necessary for each specific party (i.e. not to be shared with other parties that are not asking these specific questions)"). That is obviously a matter for commercial judgment, but we would simply note it might be thought a rather strange M&A process, at least from a prudent market operator perspective, if any offer made to one negotiating counterparty had to be shared generally, thereby impairing the offeror's prospects of doing better with someone else.
"1. With the objective of ensuring fair competition, each Party shall ensure that its regulatory framework for the production, generation, transmission, distribution or supply of electricity or natural gas is non-discriminatory with regard to rules, fees and treatment."
Did the Defendant's reasoning on the application of Article 366(1) TCA to the subsidy take into account irrelevant considerations and/or fail to have regard to relevant considerations and/or fail to make adequate enquiries in (i) placing weight on particular benchmarks and comparators to the amount of subsidy and/or (ii) in considering (or failing to consider) particular aspects of the subsidy, including "zero interest" financing to HiveCo?
(i) It is alleged that the SoS failed to take account of the fact that, if the wholesale cost of acquiring energy exceeded the amount of the Ofgem wholesale price cap, the full amounts paid to HiveCo under the WAMA would not be repaid. However, the "wholesale differential" is expressly addressed in the SCA and the AOA, and is inherent in a hedge (which, in functional terms, is what the WAMA is).
(ii) It is alleged that the SoS failed to take into account the fact that no interest was to be charged in respect of the payments made to HiveCo under the WAMA, which were paid in advance of the cashflows due from HiveCo to Bulb. Once again, this was expressly addressed in both the SCA and the AOA, and the decision reasonably reached that "with interest, the economics of the deal structure would not work", and the terms of the transaction sought to address the benefits of the time value of money to some degree (as explained by Mr Cowlishaw in his third witness statement at para. 115).
(iii) E.ON say that, while the JEAs conducted a sensitivity analysis of the Octopus transaction to show the effect of upwards and downwards movements in wholesale energy prices or demand, no sensitivity analysis was performed for the counterfactual scenarios. Beyond stating that this would have been "a sensible thing to do when comparing various options", it was not suggested that any particular insight would have been derived from it (it being obvious that higher energy costs made the counterfactual scenarios even less attractive, and lower energy costs would make the WAMA less onerous). We can see no credible basis for concluding that the JEAs' failure to include such an analysis prevented the SoS from reasonably relying upon their recommendation.
(iv) It is said that the comparison with other transactions provided by Lazard in the "Phase 2: Bid Review" document was misleading because no account was taken of the Equity Injection being made into HiveCo to ensure it had a net asset value. However, on the assumption that the comparator transactions were for solvent rather than insolvent entities (and we have been shown nothing to suggest the contrary), the comparison was appropriate, in each case comparing the price paid per customer for a solvent business. So far as other differences between the comparator transactions and the Octopus transaction are concerned, the material before the SoS, in the form of the SCA, noted limitations as to the comparability of the other transactions given the different market conditions in which they were concluded, stating only that the price per customer being paid by Octopus was "broadly in line with transactions prior to the current levels of volatility". It was never going to be possible to find a perfect comparator for the Octopus transaction, given the highly volatile market and the economic disruption caused to the UK retail energy market, but the analysis provided a rough "sense check", and was not presented as doing anything more.
(v) It is alleged that the SoS wrongly failed to benchmark the Octopus transaction against a SoLR process. However, the information provided by Ofgem on 12 August 2022 that there had only been a compulsory SoLR process for 3,000 customers, and that "in the light of market conditions and the preceding M&A process, we consider that there would be considerable risk that use of such powers could be difficult to justify for 1.6m customers, and as well bringing risk of further customer detriment and financial instability for suppliers, could also face legal challenge". Ofgem were unable to offer any considered assessment as to how long the process would take, beyond stating it would take "a number of months" with other matters needing to be "factored into estimates of timescale/planning". Further, the SCA identified risks of high levels of staff attrition, operational risks, significant funding costs and increased stress of the debtor book if Bulb remained in the SAR, while Lazard's advice was that in the medium term the outlook for an M&A process would deteriorate. Against that background, and given the obvious reluctance by Ofgem to implement a SoLR process for Bulb, it cannot be said that the SoS acted unlawfully in failing to include this as a benchmarked scenario.
(vi) It is alleged by E.ON that the SCA confused the issue of which course provided "best value for money" for the SoS, and which minimised the amount of money payable by way of subsidy. However, the increased costs which the SCA identified as a consequence of Bulb remaining in the SAR largely involved payments to Bulb in the SAR, or events which would increase the payments to Bulb necessary to move it out of the SAR (as a result of a deterioration in its net asset position).
(vii) It is alleged that there was failure properly to take into account changes in the applicable regulatory regime identified at  and . However, the effect of those changes was considered by Lazard and the JEAs on 28 September 2022, and factored into their recommendation of the Octopus transaction. The implications of the changes were also addressed in the AOA.
For the purposes of Articles 366(1)(b) and (e), was the regulatory change protection that has been provided to HiveCo/Octopus linked to any of the Defendant's objectives and/or disproportionate?
For the purposes of Article 366(1)(f), did the Funding Decision fail properly to take into account the potential scale of distortions to competition and to trade and investment caused by the subsidy?
(i) Octopus agreed it would not "interfere with or do anything the purpose of which will, or could reasonably, be expected to impair or adversely affect the relationship of HiveCo with its customers or cause any customers to transfer away from HiveCo".
(ii) There were contractual restrictions on the conduct of HiveCo and Octopus BidCo which could only deal with the wider Octopus group on an arms-length basis, including when procuring services.
(iii) Restrictions were imposed on the payment of dividends, management fees and other fees by the ringfenced entities to the wider Octopus group.
For the purposes of Article 366(1), did the Defendant err in law in identifying, as objectives of the subsidy, the need to remedy a perceived "market failure", the avoidance of social hardship from a "hard close insolvency" and/or allowing a "key challenger" to remain in the market?
|Additional principle from the SCA: The subsidy is designed to achieve its specific policy objective while minimising any negative effects on competition or investment within the UK
|The ESC special administration and Subsidy to date has not adversely impacted the energy market. Indeed by enabling a key challenger to stay in the market, the subsidy has maintained competition and helped restore confidence in challenger and green energy suppliers as well as protecting supply to Bulb's customers. The proposed transaction is in the process of being reviewed by Ofgem and has been considered by the CMA's mergers intelligence function …|
For the purposes of Article 367(4) TCA, did the Defendant err in law in identifying, as "objectives of public interest" of the subsidy, the need to remedy a severe market failure and the avoidance of social hardship?
Was the Funding Decision unlawful on the basis that the subsidy included an unlimited guarantee prohibited by Article 367(2) TCA?
Did the Defendant err in law in concluding that the subsidy responded to a national or global economic emergency for the purposes of Article 364(3) TCA?
(i) The SCA concludes that the severe economic disruption and volatility caused by the "Russian invasion of Ukraine in February 2022" constitutes a national or global economic emergency, and that the subsidies provided to HiveCo constitute a "targeted, proportionate and effective" response in order to remedy that emergency.
(ii) We are satisfied that this was an assessment reasonably open to the SoS. While the Claimants point to the fact that Bulb had entered into SAR before the Russian invasion, it is clear the economic consequences of the invasion had a very significant impact on the support required for Bulb to exit the SAR, and that the support provided was a response to that state of affairs.
(iii) Finally, E.ON suggested that Article 364(3) could not apply to a subsidy given only to one market operator or undertaking. However, there is nothing in the language of Article 364(3) which would support such a limitation, nor were we referred to any material which was said to fall within Article 32 of the VCLT and which was said to support that interpretation.
Did the Defendant err in law in concluding, for the purposes of Article 367(3) TCA, that Octopus contributed significant funds or assets to the cost of restructuring, or that there was a credible restructuring plan?
(i) The SCA expressly considered the amount of Octopus' contribution.
(ii) It concluded that Octopus' equity injection of [REDACTED] was sufficient in the prevailing circumstances.
(iii) In circumstances in which the Octopus transaction was the only bid to emerge from a lengthy M&A process which the SoS was entitled to conclude was open, transparent and competitive, that was an assessment lawfully open to the SoS.
(iv) We would also note that the transaction involved Octopus assuming operational and reputational risks, assuming responsibility for Bulb's employees, providing access to its Kraken system on the basis that payment would not be made until the ring-fencing period was over, and it assumed the economic risk of the counter-payments under the WAMA.
(i) ScottishPower challenge the Funding Decision on the basis that the subsidy provided to HiveCo for the purposes of the Octopus transaction constituted a second subsidy to Bulb in under five years, in alleged breach of Article 367(4). However, Article 367(3) permits the granting of temporary liquidity to an economic actor while a restructuring plan is prepared. The prohibition on more than one subsidy in five years does not prevent an economic actor which has received temporary liquidity funding while a restructuring plan is being prepared from then receiving a restructuring subsidy when the restructuring plan is implemented.
(ii) E.ON contends that there was no credible restructuring plan, with the result that no restructuring subsidy could lawfully be granted (Article 367(3)). However, the restructuring plan implemented by the Octopus bid was supported by the JEAs and Lazard, and the SoS was reasonably entitled to conclude that it was credible.
Was the Approval Decision vitiated because the Funding Decision involved the grant of an unlawful subsidy?